Recently, many have found it opportune to invest in Africa. Foreign direct investment has increased by almost 50% since 2005 and the IMF has even predicted that Africa’s expected GDP growth for 2013 will be 5.7%.
According to an article in The Economist (and World Bank economist Wolfgang Fengler’s analysis), there are a number of reasons that greatly explain Africa’s recent economic growth, such as population growth, widespread urbanization, technological advancement, less corrupt government practices and better corporate governance as a whole.
Keeping Mr. Fengler’s reasons for Africa’s economic growth in mind, it is understandable that investors are finding it worthwhile to invest in Africa, at least for the time being. However, will it be so wise to invest in Africa in the next ten years? Will long-term investment opportunities exist in Africa in the future? Most likely not.
The outlook on long-term investment in Africa looks pretty bleak. One main reason for this is due to fracking, which will likely play a very large role in whether or not long-term investments in Africa will be seen as lucrative in the years to come.
Africa is generally ignored when it comes to most types of investments, with the exception of the export of petroleum products, and in particular liquefied natural gas (LNG). The major LNG exporters in Africa are Algeria, Angola, Equatorial Guinea and Nigeria, with major LNG exporters potentially also including Mozambique, Tanzania and Kenya.
However, if fracking becomes as successful in other parts of the world as it has been in the United States, many countries will soon be able to find sufficient gas on their own (through fracking), which could mean the beginning of the end of LNG exports from Africa, and with it, the end of many of the present investments in Africa.
In fact, it has been suggested that fracking may be possible in India, China, Russia, Poland and Argentina, among other countries. If these countries could extract their own shale gas, there would be much less reliance on Africa and other LNG exporting regions.
According to a Telegraph article (and the Department of Energy and Climate Change), even the United Kingdom is predicted to have shale gas reserves worth about £1.5 trillion, with some of the reserves having the potential to be extracted through fracking.
While investors currently seem to have all eyes on investment opportunity in Africa, this may not be the case in the near future.